Gasification Combined Cycle power plant

Then we turn to the IGCC power plant. We analyse the valuation of an operating plant when there are switching costs between modes of operation, and the choice of the best operation mode. This serves as an input to evaluate the option to invest in this plant. Finally we derive the value of an opportunity to invest either in a NGCC or IGCC power plant, i.e. to choose between an inflexible and a flexible technology, respectively.Depending on the opportunity's time tomaturity, we derive the pairs of coal and gas prices for which it is optimal to invest in NGCC, in IGCC, or simply not to invest. Numerical computations involve the use of one- and two-dimensional binomial lattices that support a mean-revertingprocess forcoal andgasprices.Basicparametervaluesare taken fromanactual IGCCpowerplant currently inoperation.Sensitivityofsomeresultswith respect to theunderlyingstochasticprocess for fuelprice isalsochecked